Ask FPM

Bad-debt write-offs

Q

My physician-employer's CPA has told us for years that our bad-debt write-offs do not warrant a deduction on our federal taxes. Have we been given accurate advice?

A

Unfortunately, your accountant is correct. Most smaller practices use the “cash” basis of accounting. In the cash basis, income is recognized only when cash is received. If you never receive cash from a patient, you have nothing to write off.

You do expend a lot of money and effort to collect your bad debts (i.e., the cost of your staff, postage, stationery, phone calls, etc.), but you can't write these expenses off because you've already paid for them. By writing them off, you'd be doubling the expense.

Rest assured you are receiving a tax deduction for all valid expenses. The Internal Revenue Service has a very simple method to measure your business activity: Any money you take in is “income,” and any money you spend is “expense.” The difference between income and expense is profit, which is what you pay taxes on.

F. Michael Arnow, CPA, CFP*

Arnow & Associates

Glendale, Wis.

Billing company rates

Q

What is a reasonable rate to pay a billing company for the billing and collection of charges for a solo family practice office? I was quoted 11 percent.

A

A reasonable rate for most primary care practices — group or solo — is generally between 9 percent and 13 percent of a practice's total collections.

The rate a billing company charges is based on several factors: the practice's average charge and collection per patient, the number of claims the practice generates per month and the estimated total collections for the year. The company considers this information along with its own overhead costs and desired profit margin to determine how much staffing will be necessary to service the particular account and what rate it will charge.

In order to determine whether the billing company's rate is reasonable for you, ask the following questions:

What is the billing company going to do for this rate? If the company is strictly going to bill charges and not be involved in the collection process, a rate of 9 percent to 13 percent is too high.

How will the billing company follow up on all outstanding charges? If the company is going to regularly follow up with patients and insurance carriers through statements and telephone contact, the above rates are reasonable.

Does the billing company bill claims electronically, or do most go out on paper? If the billing company won't file the majority of claims electronically, you'll be paying for their inefficiency and you won't receive the optimal value for your dollar.

Tom McGuinness, CPA*

Haynes O'Neal

Houston, Texas

Time cards and efficiency

Q

I recently took over ownership of a rural health clinic, keeping the existing staff. A few of the employees pad their hours on their time cards and use their time inefficiently. When I discuss these issues with them, I encounter resistance and attitude. I'm afraid a time clock would cause too many hard feelings. How should I deal with this situation?

A

Supervising people is the most challenging and frustrating part of being a boss, especially when you inherit the staff. Your employees may be acting the way they are because it was tolerated in the past. You must be clear that you'll no longer accept this behavior. Here are some tips:

Meet with the entire staff to clearly state your expectations about accurate time recording and efficient use of time. Inform them that you'll be monitoring their performance.

Listen and respond to any concerns they may have.

Periodically — or when you suspect a problem — take notes on when employees arrive and leave work. Compare your notes to their time cards daily or when you're preparing payroll. When you do this, be sure to take notes on all employees to avoid allegations that you singled out individuals.

Meet privately with employees who are padding their time cards or working inefficiently. Describe your concerns — focusing only on the most egregious offenses — listen to the employee's side of the story and restate your expectations.

Most of your employees should modify their performance to meet your reasonable expectations. However, you may continue to experience resistance from some. Just stand firm, and continue to apply your expectations fairly to all employees. You may have to encourage those who don't comply to seek other employment opportunities.

Jack Valancy, MBA*

Jack Valancy Consulting

Cleveland Heights, Ohio

Denotes member of FP Assist, the AAFP's online clearinghouse for consultants and attorneys.

FPM E-Newsletter

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